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Here's Why You Should Retain First Horizon (FHN) at Present
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First Horizon Corporation’s (FHN - Free Report) efforts to strengthen the core-banking franchise, as well as rising loan and deposit balances, keep us encouraged. However, escalating cost base will limit its bottom line. Also, with limited liquidity, capital deployment activities seem unsustainable.
On an increase in commercial and consumer loans, First Horizon witnessed continued loan growth, seeing a compound annual growth rate (CAGR) of 27% in the last four years (2018-2021). Further, deposits saw a CAGR of 27.4% in the same period. We believe that the company is well-positioned to grow further, backed by the improving U.S. economy.
The company’s inorganic growth moves have diversified its product offerings and strengthened footprint in the Carolina and Florida markets. This has likely increased its buyout appeal and attracted TD Bank’s (TD - Free Report) acquisition of First Horizon in a $13.4-billion deal.
TD Bank anticipates the First Horizon acquisition to close by Nov 1, nine months following the deal announcement. The acquisition is subject to customary closing conditions, including approvals from First Horizon's shareholders, and U.S. and Canada regulatory authorities.
In July 2020, the company merged with IBERIABANK Corporation. Given its expanded footprint, owing to the IBERIABANK merger and the reduced need for physical centers amid the pandemic, First Horizon is optimizing its banking center network. Additionally, First Horizon has identified around $45 million of annualized revenue synergies in the commercial lending segment and other fee income opportunities.
First Horizon's trailing 12-month return on equity (ROE) reflects its superiority in terms of utilizing shareholders’ funds. The company’s ROE of 14.69% compares favorably with 11.56% for the industry.
However, FHN’s non-interest expenses witnessed a four-year (2018-2021) CAGR of 19.7%. Of the total projected net pre-tax integration costs of $520-$530 million, the company has already recorded $460 million through 2021. It expects to record $35-$40 million in first-quarter 2022 and $25-$30 million in the remaining three quarters of 2022. Such expenses will increase its cost base and limit the bottom-line growth.
Also, with cash and due from banks of $1.15 billion, and debt worth $4.14 billion as of Dec 31, 2021, the company’s liquidity position seems unsound. Amid this, First Horizon’s capital-deployment activities keep us apprehensive. In the fourth quarter of 2021, the company returned $225 million capital to its shareholders, including share buybacks and dividends.
Lastly, net interest margin (NIM) shrank in 2019, 2020 and 2021 due to declines in interest rates and strong deposit growth, inducing higher excess cash balances. Though the Fed signaled a rise in interest rates in the near future, the overall low-interest-rate environment is expected to keep NIM growth subdued.
Looking at its price performance, shares of the company have rallied 50.3% over the past six months compared with an 18% rise recorded by the industry.
Image Source: Zacks Investment Research
FHN carries a Zacks Rank #3 (Hold) at present.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are Morgan Stanley (MS - Free Report) and First Business Financial Services (FBIZ - Free Report) . Morgan Stanley currently carries a Zacks Rank #2 (Buy), whereas FBIZ sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Morgan Stanley’s current-year earnings has been revised 4.2% upward over the past 60 days. MS’s shares have risen 7% in the past year.
First Business recorded an upward earnings estimate revision of 9% for 2022 over the past 60 days. The FBIZ stock has jumped 41.3% in the past year.
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Here's Why You Should Retain First Horizon (FHN) at Present
First Horizon Corporation’s (FHN - Free Report) efforts to strengthen the core-banking franchise, as well as rising loan and deposit balances, keep us encouraged. However, escalating cost base will limit its bottom line. Also, with limited liquidity, capital deployment activities seem unsustainable.
On an increase in commercial and consumer loans, First Horizon witnessed continued loan growth, seeing a compound annual growth rate (CAGR) of 27% in the last four years (2018-2021). Further, deposits saw a CAGR of 27.4% in the same period. We believe that the company is well-positioned to grow further, backed by the improving U.S. economy.
The company’s inorganic growth moves have diversified its product offerings and strengthened footprint in the Carolina and Florida markets. This has likely increased its buyout appeal and attracted TD Bank’s (TD - Free Report) acquisition of First Horizon in a $13.4-billion deal.
TD Bank anticipates the First Horizon acquisition to close by Nov 1, nine months following the deal announcement. The acquisition is subject to customary closing conditions, including approvals from First Horizon's shareholders, and U.S. and Canada regulatory authorities.
In July 2020, the company merged with IBERIABANK Corporation. Given its expanded footprint, owing to the IBERIABANK merger and the reduced need for physical centers amid the pandemic, First Horizon is optimizing its banking center network. Additionally, First Horizon has identified around $45 million of annualized revenue synergies in the commercial lending segment and other fee income opportunities.
First Horizon's trailing 12-month return on equity (ROE) reflects its superiority in terms of utilizing shareholders’ funds. The company’s ROE of 14.69% compares favorably with 11.56% for the industry.
However, FHN’s non-interest expenses witnessed a four-year (2018-2021) CAGR of 19.7%. Of the total projected net pre-tax integration costs of $520-$530 million, the company has already recorded $460 million through 2021. It expects to record $35-$40 million in first-quarter 2022 and $25-$30 million in the remaining three quarters of 2022. Such expenses will increase its cost base and limit the bottom-line growth.
Also, with cash and due from banks of $1.15 billion, and debt worth $4.14 billion as of Dec 31, 2021, the company’s liquidity position seems unsound. Amid this, First Horizon’s capital-deployment activities keep us apprehensive. In the fourth quarter of 2021, the company returned $225 million capital to its shareholders, including share buybacks and dividends.
Lastly, net interest margin (NIM) shrank in 2019, 2020 and 2021 due to declines in interest rates and strong deposit growth, inducing higher excess cash balances. Though the Fed signaled a rise in interest rates in the near future, the overall low-interest-rate environment is expected to keep NIM growth subdued.
Looking at its price performance, shares of the company have rallied 50.3% over the past six months compared with an 18% rise recorded by the industry.
Image Source: Zacks Investment Research
FHN carries a Zacks Rank #3 (Hold) at present.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are Morgan Stanley (MS - Free Report) and First Business Financial Services (FBIZ - Free Report) . Morgan Stanley currently carries a Zacks Rank #2 (Buy), whereas FBIZ sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Morgan Stanley’s current-year earnings has been revised 4.2% upward over the past 60 days. MS’s shares have risen 7% in the past year.
First Business recorded an upward earnings estimate revision of 9% for 2022 over the past 60 days. The FBIZ stock has jumped 41.3% in the past year.